World View & Market Commentary. Forest first; Trees second. Focused on Real & Knowable facts that filter through the "experts" fluff and media hyperbole. Where we've been, what the future may hold and developing a better way forward.

Wednesday, December 10, 2008

The DOW finished the day up 70 points, the S&P added 1.2%, the NDX was up .8%, and the RUT lead the way up with a plus 2.3% showing. The XLF finished down 1%, and the VIX held above the triangle bottom closing down 5.4% at the 56 level.

The fundamental picture has no change that I can see. The IRX is still basically zero as the Treasury is able to sell debt without interest – zero, nada. Sorry, but that means that money is scared and is willing to take safety over returns. It’s still about the return OF capital, not ON capital.

Market internals were positive, advancers were about 2 to 1 over decliners, volume was almost yesterday’s equal and most of the indices produced spinning top candlesticks which indicate indecision.

Let’s take a look at the 5 minute SPX chart. There’s a lot happening there, again, you can see the blue flag and the channel that we’ve been in for the past three days now. The double red lines is the inverted H&S neckline, note that we have not been able to make progress one way or the other from there, but we do remain on the bullish side. You can see the smaller bear flag in black that broke down, but produced another flag within the channel. Lower highs, but a possible double bottom with equal lows was last made just above 885.

Now let’s zoom out to the 60 day, 60 minute SPX chart. There’s a lot happening here since late September. The rust colored downtrend line was just broken a few days ago – bullish. Then the double red lines confirmed the inverted H&S – bullish. The blue flag at the far right and seen on the 5 minute chart above is again bullish – the traditional target on that would be about 985 at this point, but again there needs to be impetus for that and it hasn’t come as of yet (symmetrical target is 940/950 which is coincidental w/38.2% fib). You can see the old big blue triangle is still there, the bottom of which is now about 858. Note that since October 10th, the deviations from that line have been getting smaller. The light blue lines I just drew in is a potentially bearish wedge. And if that weren’t enough, I drew in a lovely lavender line from the 11/4 high that when combined with the lower light blue line make a potential triangle which, being on the end of a big downtrend, you would normally expect to break down.

As you can see, there’s a reason for my non-committal in the short term – it’s justified! Now, give me a break above the lavender line or below the lower light blue line and I’ll pick a direction. Until then, small or not at all.

What tool do we have to break a tie? Well, Elliott Wave would be one – if we knew the count for sure. EW doesn’t forecast the future though, it only eliminates possibilities for us if the rules of construction are broken. Right now there is definitely more than one possibility, but the consensus seems to be that we finished all five waves of A down and have entered B up/sideway. That would argue the bullish case short term if true. The problem with EW is that we won’t know for sure until after the fact. So, basically what I’m saying here is that it’s probably a good time to go on vacation like a normal person!